How Pemex became the most indebted oil company in the world

By Amy Stillman on 2/26/2019

PB-Litoral - A Production. Photo: McDermott.

MEXICO CITY (Bloomberg) -- After more than a decade of declining production, wasteful spending and a higher tax burden than any other driller in Latin America, it’s little wonder Mexico’s Petroleos Mexicanos is the world’s most indebted oil company.

Pemex’s oil output has plunged by almost half since a 2004 peak, and its proven reserves are just a quarter of what they were almost two decades ago. Yet rather than prioritizing oilfield maintenance and new discoveries, the government-owned energy company has spent money on non-core business units and inefficient drilling projects.

Its six refineries operate at about one-third of their capacity and lose more money with each extra barrel of crude they process, despite upgrade projects that began in the early 2000s. The $12 billion Tula Bicentenario refinery was scrapped five years after it was announced, and now the new government wants to spend $8 billion on another one in Dos Bocas.

Pemex lost more than $1 billion dollars on decrepit fertilizer plants it purchased in 2014 and 2016 and squandered millions of dollars on a now-defunct electricity generation unit it created in 2015, Mexico’s Federal Audit Office said in a February report.

The company has sought to reduce spending over the years to shore up its finances. Yet the austerity measures, while helping to slow the acceleration of its debt, did little to prevent the pile from creeping higher -- to a whopping $107 billion. It’s also guaranteed that output would continue to dwindle as field maintenance and the development of new wells were suspended, and the revamp of its aging refineries delayed.

To make matters worse, Pemex has long been the government’s cash cow, accounting for about 20% of the annual federal budget. In the past two decades, 95% of Pemex’s pretax profits went to the government, which is higher than even PDVSA in Venezuela, according to Capital Economics.